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All eyes were on the pound. And unfortunately, the pound took hard hits across the board during today’s morning London session, thanks (or no thanks) to a slew of poor economic reports and the BOE’s monetary policy statement.

  • German WPI m/m: 0.3% vs. 0.1% expected, 0.0% previous
  • Swiss CPU m/m: 0.2% as expected, same as previous
  • U.K. industrial production: -0.5% vs. -0.4% expected, -0.8% previous
  • U.K. manufacturing production: -0.6% vs. -0.2% expected, -0.3% previous
  • U.K. construction output m/m: -0.7% vs. 0.3% expected, -1.3% previous
  • U.K. goods trade balance: -£13.4B vs. -£11.7B expected, -£11.4B previous
  • BOE: 7-1 vote to keep the Bank Rate at 0.25% as expected
  • Kristin Forbes voted for a rate hike again
  • BOE: 8-0 vote to maintain stock of government bonds purchased at £435B
  • BOE: 8-0 vote to maintain stock of corporate bond purchased at £10B

Major Events/Reports:

Mostly negative reports for the U.K.

The U.K. had a slew of economic reports ahead of the BOE statement, and they were all rather disappointing.

First, industrial production in the U.K. fell by 0.5% month-on-month in March. This marks the third month of declines and is worse than the consensus for a 0.4% fall to boot.

The main drag was the 4.2% slump in electricity, gas, and steam production, which subtracted 0.40% from total industrial output. The next major drag was the 0.6% fall in manufacturing output, which subtracted 0.39% from total industrial output. These were partially offset mainly by the 1.5% increase in mining and quarrying production, which added 0.19% to total industrial output.

By the way, the 0.6% fall in manufacturing output is worse than the expected tumble of only 0.2%.

Next, construction output in the U.K. fell by 0.7% month-on-month instead of rising by 0.3% as expected. Repair and maintenance, as well as lower infrastructure output, were the main drags. New housing, meanwhile, actually increased by 3.8% month-on-month, so a bit mixed actually.

Finally, U.K. trade also took a hit, widening by £2.3 billion between February and March to £4.9 billion. Quarter-on-quarter, the U.K.’s trade deficit widened by by £5.7 billion to £10.5 billion, so net trade was one of the major drags for the slow Q1 GDP growth.

The wider trade deficit, in turn, was partly due to U.K. goods trade printing a £13.4B billion deficit, which is wider than the expected £11.7 billion consensus.

MPC rate decision, meeting minutes, and inflation report

The BOE’s MPC released the minutes for its monetary policy huddle, as well as its inflation report and Guv’nah Carney’s presser, and below are some of the more important and/or interesting points in, well, bullet points for easier reading:

  • The MPC voted to maintain the BOE’s current monetary policy.
  • 7-1 vote to keep the Bank Rate at 0.25% as expected
  • 8-0 vote to maintain stock of government bonds purchased at £435B.
  • 8-0 vote to maintain stock of corporate bond purchased at £10B.
  • Note: only 8 voting members instead of 9 because Charlotte Hogg resigned back in March after failing to disclose a potential conflict of interest
  • Like last time, “Kristin Forbes considered it appropriate to increase Bank Rate by 25 basis points.”
  • Some members noted that “with inflation remaining above the target at the end of the forecast period, and uncertainty about the extent and persistence of the slowdown in Q1, it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.”
  • On the whole, the Committee judges that, if the economy follows a path broadly consistent with the May central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections.”
  • BOE also downgraded 2017 GDP, but upgraded the forecasts for 2018 and 2019 GDP growth.
  • [O]n balance, when combined with the ongoing weakness in real incomes, the Committee judged that consumption growth would be slower in the near term than previously anticipated, before recovering in the latter part of the forecast period as real income picks up.”
  • In the MPC’s central forecast, weaker consumption this year was largely balanced by rising net trade and investment, with quarterly GDP growth remaining around trend.”
  • Meanwhile, 2017 CPI was upgraded while 2018 and 2019 CPI got downgraded.
  • As for the jobless rate, forecasts for 2017, 2018, and 2019 got upgraded.
  • The BOE did note that the implied path for the Bank Rate was slower, though.
  • HOWEVER, “The projections in this Report continue to be conditioned on the average of a range of possible outcomes for those arrangements and, as before, the assumption that the adjustment to the United Kingdom’s new relationship with the European Union is smooth.”
BOE Forecasts
BOE May Inflation Report Forecasts

Commodities surge

Commodities extended their gains from the earlier Asian session and market analysts attributed that to profit-taking by shorts.

Precious metals were still printing green.

  • Gold was up by 0.37% to $1,223.42 per troy ounce
  • Silver was up by 1.20% to $16.402 per troy ounce

Base metals were still mixed, but still mostly in positive territory.

  • Copper was up by 1.90% to $2.542 per pound
  • Nickel was up by 2.35% to $9,357.50 per dry metric ton

Oil benchmarks had a much strong showing compared to the Asian session.

  • U.S. WTI crude oil was up by 1.63% to $48.10 per barrel
  • Brent crude oil was up by 1.53% to $50.99 per barrel

Major Market Mover(s):

GBP

The pound started sliding before the BOE’s monetary policy statement even rolled around, very likely because of the poor economic reports during the session. And when the BOE did finally release the minutes of its monetary policy huddle, as well as its inflation report, the pound got roughed up even more, likely because of the downgraded growth forecast for 2017, although the BOE’s note that it’s projections hinge on a “smooth” Brexit may have helped kick the pound lower as well. After all, the recent episodes of the Brexit soap opera showed that U.K. and E.U. officials haven’t been getting along recently.

GBP/USD was down by 78 pips (-0.60%) to 1.2856, GBP/JPY was down by 120 pips (-0.81%) to 146.42, GBP/CHF was down by 76 pips (-0.57%) to 1.2962

Watch Out For:

  • 12:30 pm GMT: Canadian NHPI (0.2% expectedm 0.4% previous)
  • 12:30 pm GMT: Headline (0.2% expected, -0.1% previous) and core (0.2% expected, 0.0% previous) readings for U.S. PPI
  • 12:30 pm GMT: U.S. initial jobless claims (245K expected, 238K previous)
  • 2:30 pm GMT: BOC’s semi-annual review will be released